Edward Sonshine was broke when he started RioCan Real Estate Investment Trust 20 years ago. Not figuratively, but literally: he owed more money than he actually had. For what? He’d left a job as a real estate lawyer working for industry icons such as Murray Frum. It wasn’t the real estate of today, property prices were plummeting and people and major companies were going bankrupt every day.

But Sonshine knew from struggles. His parents were Holocaust survivors. He was born in a displacement camp in Germany, coming to Canada when he was two. He’d been practising real estate law long enough, negotiating leases and transactions, that he thought he knew as much as or more than the people he was acting for in those deals. In short, he wanted in on the action.

The early years weren’t easy. Mistrust of the real estate industry and anybody associated with it was rampant. But Sonshine persisted and 20 years later the proof of his success is in the numbers. A $70,000 investment in RioCan at the start would be worth more than $1 million today. At the helm of what is now Canada’s largest publicly traded REIT, Sonshine is being recognized for his success as Canada’s Outstanding CEO of the Year for 2013, as presented by Bennet Jones and Caldwell Partners.

Sonshine recalls when RioCan decided to internalize the management of the REIT as an example of the distrust of all things real estate. To buy its way out of the contract, RioCan paid $4 million to $4.5 million in stock without any cash leaving the business, but the decision drew a huge backlash from investors. “It was a really difficult process. Everybody just assumed we were up to something,” he says, noting a fellow Canadian REIT last year internalized for $200 million. “Yet the noise and goings on and the accusations in that meeting in 1995? It was awful.”

But he made the right moves to counteract that noise. Perhaps his most memorable move was the decision to go after RealFund in 1998, when nobody had ever done a hostile takeover in the REIT sector. It was a six-month process that Sonshine says he might not have gone through with if he’d known how difficult it would be, but it made RioCan the largest REIT in Canada overnight and a $1-billion company.

Sonshine signed a five-year deal to stay on as chief executive three years ago, but he doesn’t plan on retiring any time soon. “Retire to what? I play enough golf,” he says. “I’ll do it as long as my health permits and my board and shareholders agree with me.” One person who certainly agrees with him is his wife, Fran. They’ve been married for 45 years and he gives her a lot of credit for the success of RioCan. “The role of a wife in business success is understated. I won’t call her old fashioned, but her job was to look after the house. My job was to make sure there was money, but her job was to do everything else. Her competence, to not make great demands on my time, gave me the opportunity to build a company.”

He also offers praise to the country he has made his home. “I’ve always felt this was a country where you made of yourself whatever your abilities would allow you to do. Just because you were born into a certain economic demographic didn’t mean a damn thing. You can go as far as your talent and brains will take you.”

Sonshine sat down with Financial Post Magazine to discuss his rise to the top, but also the future of REITs and real estate in Canada.

FP: RioCan has had average annualized returns of about 16% since it started trading. Someone who invested about $70,000 back then would be a millionaire today, even after inflation. Did you ever expect this type of success? There are stories about Warren Buffett’s billionaires, what about RioCan millionaires?

Sonshine: It’s been a great story. I’m astonished to get this award. I think it’s a term award rather than a one-year award. We have created a lot [of millionaires], myself included. Everybody looks at you today, whether you are a person or a company, and thinks that’s the way it’s always been. When RioCan got started back in November 1993 — I remind my kids of this and young people in general — I had a negative net worth personally. In other words, I owed more than I had. It’s not so unusual in this world, but here I was 46 years old thinking, “How am I ever going to get out of debt?” RioCan has done wonders for me and I can’t tell you how many people my age or older come up to me in the oddest places, New York, Israel, Montreal, Toronto, it doesn’t seem to matter, and they’ll say, “Mr. Sonshine, I want to thank you. You’re funding my retirement in much better shape than I thought I’d be.” We were a big RRSP investment for people. It’s paid off for them. They live off the income. It’s very gratifying.

FP: Any one interaction with unitholders that stands out? There was the gentleman who serenaded you with “You Are the Sunshine of My Life” at an annual general meeting. Do you remember him?

Sonshine: That was a teacher. He sang me the song. It was because there were rumours around that Kimco Realty was going to buy RioCan. It was basically, don’t take my Sonshine away. In other words, don’t let RioCan disappear.

FP: Any memorable negative confrontations with unitholders?

Sonshine: People today don’t understand how mistrusted anybody in real estate was in the early to mid-1990s. Everybody had lost a lot of money in real estate. So for anybody trying to promote or sell real estate or get you to invest in real estate, everybody started from the assumption, “You must be a crook, you are the real estate business and you want to take my money.”

FP: How did you come up with the name RioCan?

Sonshine: I had a whole contest internally to come up with a name, not that we had many employees. There were a bunch of good names, but I couldn’t get them cleared. At that point, we hadn’t really firmed up with going into retail only so a couple of us just sitting around said we want a Canadian flavour so how about Retail, Industrial, Office? So RIO CAN. It was that simple. The only negative with it is every so often somebody thinks we’re Brazilian. That’s okay, sometimes they think that in the United States.

FP: What made you leave your job as a lawyer and go into real estate?

Sonshine: I practised law for 15 years. [Real estate developer] Murray Frum was one of my biggest clients. Not just Dr. Frum. In those days you didn’t specialize, you did everything that brought in fees. I ended up representing a lot of shopping centre developers. Murray was obviously the premiere one, but there were others. My practice was 75% shopping centres, 25% tenants. I got to see it from both sides. It was the mid-1980s, I wasn’t getting bored but it was repetitive. The only part of the business I really enjoyed was giving business advice to clients as opposed to legal advice. I came to the conclusion, and perhaps it was a bit arrogant, that I can do this at least as well as my clients. I’m coming up with better ideas so why not do it directly? Plus, I couldn’t really invest in real estate, there would always be conflicts, so as long as I practised law I had to be a lawyer and not an investor. I was anxious to make some money.

FP: How bad did it get during real estate’s ugly days?

Sonshine: I ended up going into Counsel in 1986 where Murray was at the time. I didn’t know the real estate industry would have all of two good years and then it would be 1989. There were a few years where I thought, “Why did I ever leave law?” The world was collapsing around us and for the next few years we were really in survival mode. It’s hard to exaggerate how bad it was. The biggest public companies of that time were going broke. I was walking down Bay St. in 1991, 1992, very depressed, and the then-CEO of Cadillac Fairview, one of the big dogs at the time, still is, says to me, “Eddie, how you doing?” I said, “It’s tough. I go to work every day and try to get through it at the end of the day. I know you at Cadillac Fairview don’t have those kind of problems.” He said, “All of us in the real estate industry are on the conveyer belt and at the end of the belt is a fire called bankruptcy. The only difference between larger and smaller companies is our position on the conveyor belt. Unless the belt stops moving towards the fire, we all go in.”

FP: Commercial real estate has been on an incredible run since that crash. Do you ever think we’ll revisit those dark days?

Sonshine: No, no, I don’t for two reasons. The same reason homebuilders don’t get into trouble anymore, and my father was a homebuilder. Up until the late 1980s and early 1990s, homebuilders just built, they didn’t pre-sale. They just assumed somebody would buy it. They didn’t want to pre-sale because prices were going up in the 1980s, so why pre-sale? You sell when you’re finished. It didn’t end well in the early 1990s. The whole house building [industry] then changed so it won’t crack. Everything is pre-sold. Nobody builds anything residential that isn’t pre-sold. It’s the same with commercial. You don’t pre-sale, but one of the reasons I was attracted to strip centres and power centres is we don’t build anything that is not preleased — largely to national tenants. The other thing that’s changed is the level of debt. The joke used to be if you don’t borrow 110% of the cost of a project, you’re not a real estate guy. Now we would never dream of going over 50% of the cost. One thing about Canadian banks, they have long memories. Can there be a slowdown? Of course. It has to happen but it hasn’t in 20 years straight. There’s been some rocks and shocks. We had the tech bust, a lot of people lost a lot of money. In 2008, we had the whole financial crisis. People were terrified, they certainly weren’t expanding.

FP: Can you talk about your upbringing and coming to Canada?

Sonshine: My family emigrated to Canada in 1949. My parents were both survivors of the Holocaust. We came when I was two years old. I was born in a displaced persons camp in Germany after the war. We were fortunate to get into Canada. I couldn’t speak English when I came, I spoke German and Yiddish.

FP: Do you think that upbringing has impacted you and how you conduct yourself?

Sonshine: A little bit. Some people think I can be aggressive and perhaps I can. RioCan can be aggressive. But what it’s made me feel, and it’s hard to believe based on where I’m sitting today, is that I’ve always thought of myself as an outsider. Listen, until I was teenager, I didn’t know anybody had parents who spoke without an accent. My parents had accents, they learned English later in life, and all my friends’ parents were the same. There were little differences in my life. I didn’t know what grandparents were until I was a young child and somebody said to me, “I’m going to my grandmother’s house.” I told this story at my mother’s funeral about how when I was six years old I asked my mother, “What’s a grandmother?” It’s the only time I ever saw her cry. It wasn’t conventional. I didn’t have aunts and uncles. But at the same time, I always appreciated Canada — maybe more than people who grew up here and didn’t know anything else. My father used to make a joke when he turned 65 and started getting Canada Pension Plan. He called me up and said, “I brought you to the best country in the world.” I said, “Why, it’s been pretty good.” He said, “No, you don’t understand. Where I grew up in Poland, the government just wanted to kill me. Here they send me a cheque for staying alive. This is the best country, Eddie.”

FP: Did you ever really think about cutting RioCan’s distribution? There was a period when people on Bay St. said you were paying out more than you were pulling in and it was not sustainable.

Sonshine: They were right, we were over-distributing. Did I think about cutting it? Of course. Everybody was telling me to cut it including some members of my own board. It got brought into focus by the financial crisis. In 2009 I think we only earned $1.22 in funds from operations and we distributed $1.38. Take into account capital expenditures, the shortfall was more dramatic. I made a deal with the board because I knew a lot of shareholders relied on distributions. If it didn’t turn around in two years, we would look at it again. It would have been easy to cut the distribution or just give it to people in stock. I just felt a lot of people were relying on it. I felt we have this covenant with those people. We didn’t increase it for four years. Before that we had increased every year from the year we started, sometimes twice a year.

FP: How important was the expansion into the U.S.?

Sonshine: It was absolutely key, because we knew if we can buy $1.5 billion to $2 billion at a certain spread between our cost of capital and the cap rate we can get, then we could right-size the company. We did it. I didn’t think we could get that quantity of real estate in Canada. I thought it was the best time because prices had fallen off tremendously in the States, more so than in Canada. The reason was availability of capital. By early 2009, we knew we could get capital and they couldn’t. And even the ones who could, ours was cheaper. Suddenly we had an advantage in the United States. At the same time, we have shareholders who were dubious about expansion into the United Sates. It was a perceived risk.

FP: What is the future of the mall?

Sonshine: I am a believer in the traditional enclosed mall. We’ve made a move into that in the past couple of years and bought three big malls here in Toronto. I think they are, No. 1, more fashion-oriented than big box. Notwithstanding the convenience of the Internet, the large mass of people still want to try their clothes on. Colours just don’t look the same on the computer as they do in life and sizes are never right. The second part of going to a mall, if it’s a certain size and done the right way, is that there is a certain social aspect to it. Kids don’t go out at the power centre. The online world will force [retailers] to be a lot better and a lot more relevant to the younger generation.

FP: What happens to all those big-box malls?

Sonshine: The good retailers are already adapting. They have a combined offering. I’m on the board of the International Council of Shopping Centres and the phrase we hear a lot in the big board meetings is omni channel. That means that out of that retail facility, you better be selling through video, through WiFi, over the Internet and in person. The idea is to get all those channels to circle back to the store. Sure, you can order off the Internet and we’ll deliver it the same as Amazon will and, guess what, if you need to return it or it doesn’t fit, come into the store. The stores almost become like depots. The other thing you’ll see in power centres, as big-box retailers downsize, is more service-oriented tenancies and what I mean by service providers is like a gym. You can’t get a gym over the Internet. Medical clinics. We’re seeing more and more of them in the United States and it is happening here. The medical system is becoming more diverse and not everything is happening in a hospital. Medical practices are moving out of offices and into malls. The biggest thing we are seeing is restaurants. Not a lot of people have dinner parties in 600-square-foot apartments. The demand for restaurants has become significant.

FP: Are U.S. retailers a serious threat to Canadian retailers and do you think we’ll see more mergers like we saw with Shoppers Drug Mart and Loblaw?

Sonshine: That deal made a lot of sense. It took me by surprise, but it was as much about urban strategies as anything else. It will have a serious impact; it already has. Canadian Tire keeps buying brands and nobody understands why — Mark’s Work Wearhouse, Sport Chek — but it’s been brilliant. It is making them better, but, having said that, there will always be casualties. Who they will be I don’t know.

FP: Are you worried about facing competition for investors from the retailers who have started or are considering their own REITs such as Loblaw, Canadian Tire and Hudson’s Bay?

Sonshine: They are taking advantage of a lower-cost way of financing their real estate. They are unlocking the value of the real estate on their books. In each case, they’ve kept absolute control of their real estate. On the one hand, I’m not a huge fan of it because it takes away from what I see as one of the great strengths of REITs, which is diversification. I am one of those guys who still remembers Eaton’s going broke. Twice. They had been the great retailer of Canada for 100 years. Nothing is forever. The way we saw for a REIT to protect itself is not to put too many of your eggs in one basket. Loblaw and Canadian Tire are two unquestioned retailers, but I’m not sure I want to own something where 90% of your income comes from one retailer. That’s a big bet.

FP: REITs have been around 20 years. Are they popular just because of the tax structure? And what type of advantage did you gain when Ottawa announced in 2006 it was disallowing business trusts?

Sonshine: It took a few years but we did get a benefit. But today people almost forget the tax structure. You go back to the beginning of the REIT and they were founded on simple principles. In the 1990s, when we looked back at who went broke and who didn’t, I tried to structure the REIT against things like too much debt, lack of diversification, lack of cash flow. I’ll get people coming to me to ask, “Eddie, what do you think about this investment?” and I’ll say, “Why don’t you just buy a REIT? Not just RioCan but a REIT.” We offer the same tax treatment as owning it personally and diversification. You don’t know what happens with one property. They can build a median in front of your property and no one can turn left into it. We offer professional management, it’s not a part-time job for you. Most important, we offer you liquidity; one day you need the money sell your units on the TSX with one call. REITs are now accepted in country after country.